Your Finances: For donations, itemize your tax deductions

As 2012 comes to a close, there's uncertainty everywhere. What to make of the Mayan calendar ending on 12-21-12? Will the U.S. fall off the fiscal cliff?

Laura Medigovich

As 2012 comes to a close, there's uncertainty everywhere. What to make of the Mayan calendar ending on 12-21-12? Will the U.S. fall off the fiscal cliff?

Well, I assume if you are reading this article, then you survived whatever 12-21-12 had in store. As far as the fiscal cliff goes, I will leave that up to the politicians in Washington to handle.

There is one thing that is certain at this time of year, regardless of all the other folly around us, and that is the generous human spirit. There is something about the holiday season that seems to make many of us radiate with compassion. We tend to be kinder, gentler souls and we tend to be more charitably inclined.

This is probably why so many charities send out solicitations this time of year. They want to be certain they are at the top of your mind if you are feeling charitable.

You really can't blame the charities, because not only are holiday spirits high at this time of year, but the end of the year is approaching and tax season is right around the corner. And charities know that some people are motivated to donate purely due to benevolent intent, while others are motivated by the combination of benevolent intent and a tax deduction. The IRS rewards us for making charitable contributions by allowing income and estate tax deductions.

Charitable contributions are the cornerstone of many not-for-profit organizations. Many charities depend on donations for the majority of their revenue.

The relationship is symbiotic. When we donate to charities, the charities receive operating income and we get a tax benefit. Keep in mind that in order to write off your charitable contribution on your taxes, you must itemize your deductions rather than take the standard deduction. For married couples filing jointly, the standard deduction for 2012 is $11,900 and for single taxpayers it is $5,950.

So, if you are looking for ways to lower your 2012 tax liability, one of the quickest and simplest methods is by making a donation to a qualified charity before year-end. Contributions to charities can be made in various forms. You can send a check to your favorite charity or make a donation online. You can donate gently used coats, or new toys and clothes for underprivileged children. You can transfer shares of stock or mutual funds. You can even donate your old car.

As a general rule, for qualified charities, you can deduct up to 50 percent of your adjusted gross income (AGI) for cash (check or money) donations and 30 percent of your AGI for donations of appreciated assets (securities, art work and property). For private foundations, you can deduct up to 30 percent of your AGI for cash donations and 20 percent of your AGI for donations of appreciated assets.

As always, it is a good idea to check with your tax adviser before making any substantial donation.

Laura Medigovich is a certified financial planner and vice president for M&T Bank's Hudson Valley region. The views expressed by the author are her own and are not endorsed by M&T Bank, M&T Securities or their affiliates.